ESG investment market set to double in 2021
The environmental, social and governance-based investment market is set to double in 2021 as investors plan to move funds to support companies with a positive ESG rating or impact, a new report shows.
The study by OnePlanetCapital, a new sustainability driven investment house focused on climate change, revealed that a tenth of (9 per cent) investors currently hold ESG investments. The market is set to double this year as over one in 10 (12 per cent) investors who do not currently invest in ESG plan to move investments to ESG related funds in 2021.
Furthermore, an additional 17 per cent of investors are planning to move to ESG in 2022 or later, showing the potential the market has to grow in the coming years. Even of those who do not plan on moving investments to ESG this year or next, two fifths (40 per cent) are still considering moving them in the future, which is a higher proportion than those who are not considering moving them at all (30 per cent).
ESG is now a key factor for investors when making decisions about their portfolio, with the research suggesting investors are becoming increasingly concerned about global environmental issues such as climate change.
Three quarters (75 per cent) say investing in businesses that tackle climate change or have a positive impact on the environment is important to them. One in seven (70 per cent) investors say they would avoid investing in a business with a negative societal, corporate governance or environmental impact, showing the influence a company’s ESG credentials can have on the value placed on them by investors.
Almost three in 10 (28 per cent) investors would consider higher risk/higher return investments that tackled climate change over safer, more traditional stocks. This suggests that early stage investors who would traditionally focus on traditional funds would be interested in taking more of a risk in ESG related funds, such as Enterprise Investment Schemes (EIS), if it enabled them to invest in sustainable businesses and contribute to offsetting global issues such as climate change.
When looking at age demographics, environmental, social and governance-based investments are highly regarded across all age groups. Three in four (77 per cent) of 18-35 year olds, and 35-55 year olds, say ESG is important to them when investing. This drops slightly for over 55s with 71 per cent saying the same.
Incidence of ESG investors is highest in London, with one in five (18 per cent) Londoners currently investing in sustainable investments. This is followed by 12 per cent of those in the South East and South West, and then 10 per cent or less for all other regions.
Of those who do already invest in ESG funds, their top reason for doing so is to support companies who are making a positive impact on the environment (54 per cent). Well over two fifths (45 per cent) also state that it will give a good return on investment, and over one in three (37 per cent) are doing it to invest in our collective future.
Furthermore, a third (34 per cent) invest in ESG because it’s good for the environment, 31 per cent believe it’s simply the right thing to do, and a quarter (24 per cent) say they are investing in ESG to invest in their children’s future.
These findings come at a time where The Chancellor Rishi Sunak is being urged to make tweaks to the EIS scheme to promote the creation of thousands of jobs in growth businesses.
As the UK economy plots a course to economic recovery post-Covid 19, it is clear that there is a very real opportunity for this recovery to be built upon investment in green business and technology.
Matthew Jellicoe, Co-founder of OnePlanetCapital, comments: ‘We are hugely encouraged to see a real desire amongst the investor community to invest in ESG as we plot a course for the post-Covid economic recovery.
“ESG is highly regarded among investors. The world is waking up to both the positive and negative influences that businesses can have on the environment, and a company’s ESG credentials, or lack of, is not going unnoticed by investors.
“Our research shows that over a quarter of the investor community said they would be interested in taking on ‘riskier’ investments if they felt they would have a positive impact on the climate.
“It is now clear that investment performance does not need to be sacrificed in order to tackle the environmental problems of the day. UK sustainable funds are likely to outperform the market over the short, medium and long term.
“In order to meet the goals set out in the Paris Climate Agreement, and the UK’s commitment to end its contribution to global warming by 2050, unprecedented change is required to our global economy. We are on the verge of a green industrial revolution and we have the opportunity here to emerge from Covid-19 with a much greener, and more sustainable economy.
“The first step is to actively invest your finances in businesses taking steps to tackle climate change. This will support them to grow, and therefore have an even greater benefit on the environment.
“We only have one planet and it’s time to make a difference for our collective future. That is why at One Planet Capital we are offering a very focused early stage portfolio of investments, including a specialist EIS fund designed to support businesses that are tackling climate change”
Earlier this year, OnePlanetCapital launched a specialist sustainability EIS Fund to invest in businesses tackling climate change.
The new OnePlanetCapital Sustainable EIS Fund is focused on targeting investments that will tackle climate change and supporting businesses with a positive environmental impact. It aims to deliver industry leading returns whilst only backing companies and projects that will genuinely benefit the environmental prospects of the UK and the wider planet.